Berkeley Patients Group pays fraction of tax bill

Berkeley Patients Group opened its doors at 2366 San Pablo Ave. in December 2012. Photo: Frances Dinkelspiel

The state Board of Equalization and Berkeley Patients Group (BPG) have worked out a compromise that reduces the dispensary’s delinquent tax bill from $7.5 million to $49,500.

Despite selling millions of dollars in medical cannabis each year and paying its top executives close to $1 million in salaries, BPG told the state it could not afford to pay the taxes and interest it owed for the years 2004 to 2007, according to a document prepared by the Board of Equalization. At its Dec. 18-19, 2012, meeting, the board voted unanimously to accept a compromise payment of $49,500.

“The amount of the accepted offer, $49,500, represents the most the state can expect to collect from the taxpayer’s assets or income within a reasonable period of time,” reads the board’s public record statement prepared on the case. “The taxpayer does not have reasonable prospects of acquiring increased income or assets that would enable the taxpayer to satisfy a greater amount of liability that the compromised account within a reasonable amount of time.”

BPG did not pay taxes from 2004 to 2007 because the laws concerning medical cannabis were murky. BPG and other dispensaries believed cannabis was classified as medicine and therefore was exempt from sales tax. The equalization board ruled in September 2010 that medical cannabis is not a medicine and is not exempt. It audited BPG and informed the dispensary that it was liable for $4.4 million in back taxes plus interest. The Patients’ Care Collective, another Berkeley dispensary, was informed it owned $639,000 in back taxes.

Berkeley Patients Group entered into the “Offer in Compromise” program with the board, which allows a corporation or individual to pay off delinquent taxes in installments or work to negotiate down the payment. The staff of the board determines the amount, and the five elected board members can only accept or reject the compromise, not make independent queries, according to Betty T. Yee, who represents Northern California.

“It’s a pretty rigorous program,” said Yee.

Berkeleyside sent Berkeley Patients Group an email about the payment on Friday and followed up with a phone call, but no one from the organization had commented by press time.

While income figures for 2004-07 are not public, the Center for Investigation Reporting obtained internal BPG accounting documents in 2012 and determined that the group grossed $17.4 million in 2008 and $16.4 million in 2009. The cost of goods for 2008 was $10 million and $9 million in 2009, leaving a gross profit margin close to 40%, according to CIR. BPG incurred about $3.3 million in labor costs each year, which included $911,000 in salaries to its then co-directors, Tim Schick, Etienne Fontan and Debby Goldsberry.

BPG reached the tax compromise with the equalization board in one of the organization’s bleakest and most financially pressing periods. In May 2012, BPG was forced to move out of its long-time home at 2747 San Pablo Ave. because U.S. attorney Melinda Haag sent a letter to David Mayeri, BPG’s landlord, threatening to seize the property. Haag said BPG was located within 1,000 feet of a school, which made it illegal under state law.

BPG started a medical cannabis delivery service after it closed, but its income fell dramatically from May 2012 until December 2012 when it reopened down the street at 2366 San Pablo Ave. While BPG does not reveal its income, the decline is evident in the amount of money the city of Berkeley collected in cannabis taxes in fiscal year 2013. Berkeley, which taxes dispensaries $25 for every $1,000 sold, only collected $479,255 that year. In FY 2012, when BPG was operating at full strength, Berkeley collected $746,009 in taxes. Three dispensaries pay taxes to the city, but BPG, which had about 10,000 patient members in 2012, is the largest.

BPG is once again facing eviction. Haag sent a forfeiture letter in May to the dispensary’s new landlord, telling her the group is illegally located because it sits close to a preschool. The landlord, Nahai Droubi, as well as BPG, are fighting the lawsuit.

Moore said Berkeley Patients Group has been a good corporate citizen, generously donating to organizations and non-profits in Berkeley, including the Berkeley Public Schools Fund, the campaign to build the new west branch of the public library and the Center for Early Intervention on Deafness. In addition, they employ a number of Berkeley residents.

The $49,550 payment “is between them and the state Board of Equalization,” said Moore. “If the BOE decided that’s all they have to pay, well I can’t comment on that. That was negotiated. That was the agreement. I still think they’ve been very responsive to the Berkeley community. From what I’ve seen they’ve made some sizeable contributions to nonprofits and organizations.”

The Center for Investigative Reporting said BPG donated $18,083 to local charities in 2009. That same year, BPG gave $253,433 to marijuana advocacy organizations.

Typical Berkeley? It was the STATE Board of Equalization that agreed to this tax settlement.

The_Sharkey

So can all individuals residing in Berkeley reduce their State tax burdens a similar amount by simply not paying them for several years?

Biker 94703

I encourage you to take it up with the Board of Equalization. Good luck.

The_Sharkey

Agreed.
“Typical California!” would be more on the mark.

I wish we could do away with the “medicinal” malarky and just completely legalize the stuff so that we could completely eliminate “confusion” like this about tax liabilities.

3rdGenBerkeleyan

Typical of the way things go in Berkeley…how’s that?

BerkeleyCommonSense

I guess it’s easy to be “non profit” when you pay your execs millions. Surely that was within the intent of prop215…

The Peev

Pfizer?

bob

I find this despicable and certainly not the “Berkeley way”. I will encourage everyone of my friends with cards to go elsewhere for medical marijuana than line the pockets of these greedy SOBs.

guest

R-A-C-K-E-T

Bill N

Well I hope they paid state income tax anyway.

3rdGenBerkeleyan

I doubt it

Truth Sayer

I am sure that the Berkeley government allows other businesses to avoid taxes, and pay only a paltry portion of what is due. You have got to hand it to Berkeley’s government. They are so generous with tax dollars. We need to increase taxes immediately to make up for their generosity.

Truth Sayer

Why such a huge tax reduction for a business that payed nothing for years? A tax bill of 7.5 million reduced to less than 50K? This does not pass the smell test. I guess this is the “Berkeley way”